In the United States, the price of gasoline in March (+18%) sends inflation to +8.5%: unprecedented since 1981

Inflation accelerated further in March in the United States reaching 8.5% year-on-year in March, its highest level since 1981, compared to 7.9% in February (already a record since 1982) according to the consumer price index (IPC) published this Tuesday by the Department of Labor. And the Biden administration has announced measures to counteract the effects, particularly on the purchasing power of Americans.

Two main reasons for this series of records: gasoline prices that have skyrocketed since the outbreak of the war in Ukraine, but housing and food prices are also contributing to this increase, the Labor Department said.

Note that the month of March is the first to fully integrate the effect of the war in Ukraine, which began in the last days of February.

The war between Ukraine and Russia started by Moscow on February 24 led the United States to ban all imports of Russian oil, liquefied natural gas and coal. And it promotes the rise in the prices of many raw materials, particularly agricultural ones, with Russia and Ukraine being two of the main exporters of wheat and sunflower oil, among others.

In detail, in one month, the US consumer price index (CPI) rose 1.2%, compared to 0.8% in February. Half of the inflation is due to gasoline prices alone, which have soared 18.3% since last month, a factor that adds to the shortage of goods and labor.

Lhe price of a gallon of gasoline at the pump reached an all-time high in March, according to the AAA Automobile Federation. And although fuels continued to be the main driver of the rise in the CPI, food products and rents also contributed significantly to the rise in the price index.

It’s not over, but the Fed hopes to avoid double-digit inflation

Looking at core inflation (also known as “core CPI”), excluding food and energy prices to get a fairer picture of longer-term price developments, we see that it is slowing compared to February , at 0.3% vs. 0.5%

And because these monthly US consumer price figures are in line with expectations and show that theinflation Excluding energy and food slowed, the New York Stock Exchange opened higher on Tuesday.

This point, considered reassuring, favors the drop in Treasury bond yields, whose rise until now had been supported by expectations of a rapid rate hike by the Federal Reserve. The ten-year bond yield, which had earlier hit its highest level in more than three years at 2.836%, fell to 2.7289%.

This start of easing in the bond market mainly favors technology stocks, which are sensitive to changes in interest rates: its S&P index rose 1.07% and among the sector heavyweights, Apple took 1.08%, Microsoft 1.08% and Netflix 2.09. %

Within minutes of the start of trading, the Dow Jones Industrial Average was up 252.39 points, or 0.74%, at 34,560.47, the Standard & Poor’s 500 was up 0.87% at 4,450.70 and Of course, the Nasdaq Composite, the technology stock index, was also in the game, gaining 1.2% to 13,573.35.

However, if we look at this core CPI index over a year, the picture is quite different: there we see inflation accelerating and still reaching 6.5%, its highest level since August 1982.

Annotate, Used car prices, which have been driving inflation for months, fell in March. (-3.8%). This moderation in the prices of second-hand and utility cars has slowed down the rise ininflation called basic.

Nevertheless, inflation will continue to rise underlines the Fed that foresees a peak in May, around 9%then a slow retreat, for “end the year still above 5%”plus avoiding the specter of double-digit inflation.

For two years, inflation has exceeded 2%, the Fed’s target value

The White House had taken the initiative on Monday, warning that inflation would be “extraordinarily high”.

And on Tuesday he announced a series of initiatives aimed at increasing the use and production of biofuels, in the hope of lowering prices at the pump.

Because after announcing historic withdrawals from America’s strategic oil reserves, President Joe Biden is running out of leverage to curb what the White House invariably calls the “Putin effect” on inflation, in an attempt so far unsuccessful in mitigating the political cost to the Democrat.

Thus, E15, a fuel that incorporates 15% ethanol, may be marketed this summer, its distribution being normally prohibited during this season. The White House will also release funds for biofuel production infrastructure and to encourage the development of biofuels for aviation.

Joe Biden hopes to kill several birds with one stone: lower prices at gas stations, making promises about the environment and energy independence, and scoring a few points with a rural America that usually doesn’t hold him at heart.

The Fed has started raising rates to curb overheating

For a year now, inflation, which reduces the purchasing power of households, has been above the 2% target of the US central bank (Fed). The month of March is even the sixth in a row to record a price increase of more than 6%.

The institution began in mid-March to raise its key rates, to increase the cost of credit and thus curb consumption and investment. He also warned that he would continue to tighten monetary policy in the coming months.

The rates, which were in the range of 0 to 0.25%, are now between 0.25 and 0.50%.

But since this is the sixth consecutive month of inflation above 6% In the U.Sthe Federal Reserve could accelerate the increase in its Velocity of interest next month: the markets already anticipate a rise of half a point in the Velocity federal funds (“fed funds”) on May 4, following a quarter-point decision in March, the first in more than three years.

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NOTE on the indices taken into account

L’CPI index it is the one on which pensions are indexed, in particular. But the Fed favors another indicator, thePCE indexshowing that inflation rose to 6.4% year-on-year in February.

(with AFP and Reuters)